Payday Lending Reform Legislation Unveiled

Delegate Terry G. Kilgore (R-Scott), Chairman of the House Commerce and Labor Committee, Monday announced the details of comprehensive legislation that would reform the payday lending industry in Virginia.

Kilgore, flanked by the Speaker of the House William J. Howell (R-Stafford), a bi-partisan coalition of Republican and Democratic delegates and others supporting the measure, made the major announcement at a news conference at the State Capitol.

“Reaching a compromise that would provide strong consumer protection while still making this service available to Virginians seemed remote when this session began,” declared Kilgore. “Today, I am proud to stand with these Republican and Democratic legislators who have worked so hard and for so long to make that goal a reality, and join them in supporting this important reform.”

The compromise, to be introduced atTuesday’s meeting of the House Commerce and Labor Committee as a substitute to House Bill 12 sponsored by Delegate G. Glenn Oder (R-Newport News), will place a 36 percent annual interest rate cap on the small loans guaranteed by the paychecks of borrowers.

In addition, payday lenders will be allowed to charge a loan fee equal to ten percent of the amount borrowed and a verification fee of $5 per loan.

Other provisions of the compromise legislation require that loans be issued with a minimum term of at least double the pay cycle of the borrower and create an independent database.

The database would be used to ensure that a borrower cannot have more than one payday loan outstanding, require a 24-hour “cooling off” period between loans, and restrict to five the annual number of loans made to any one borrower.

Highlighting the comprehensive nature of the compromise, the legislation applies to payday loans issued to Virginia residents over the Internet, even if the lender is located outside the Commonwealth.

Further restrictions would protect borrowers from legal proceedings until 60 days after default on a loan, mandate compliance with the Fair Debt Collection Practices Act, and make a voluntary extended payment plan available to borrowers by request.

“Those who have worked to enact sensible reforms on this industry and break the cycle of debt that ensnares too many Virginians need to embrace this comprehensive plan,” remarked Oder. “This is not the easiest thing to do, but it is the right thing to do. The provisions of this measure will provide Virginians who utilize payday loans with protections that are much-needed and long overdue. The coalition of legislators here to show their support today is evidence of what we hope will be the momentum needed to get this bill to the Governor’s desk this session.”

“This breakthrough demonstrates that working together, we can address issues impact the financial security of all Virginians,” said Jones. “I am committed to working with my colleagues to ensure that we move this bill through the House and Senate so people can finally have an opportunity to break the cycle of debt.”

Delegates involved in reaching the comprehensive compromise announced Monday include Terry G. Kilgore, G. Glenn Oder, John, M. O’Bannon, III (R-Henrico), Dwight C. Jones (D-Richmond) and Chairman of the Legislative Black Caucus, Timothy D. Hugo (R-Fairfax), Kenneth R. Melvin (D-Portsmouth), Christopher B. Saxman (R-Staunton), Jennifer L. McClellan (D-Richmond), M. Kirkland “Kirk” Cox (R-Colonial Heights), Harvey B. Morgan (R-Gloucester), and Speaker William J. Howell (R-Stafford), among others.

Organizations advocating reforms and who support this effort to break the cycle of debt include the Center for Responsible Lending, Virginians Against Pay Day Lending, The Family Foundation, AARP Virginia, the Virginia Partnership to Encourage Responsible Lending, Virginia Organizing Project, Virginia Poverty Law Center, Virginia Citizens Consumer Council, and the Virginia Interfaith Center for Public Policy, among others.

“Today’s announcement is a great example of what can be accomplished when Republican and Democratic legislators roll up their sleeves and work together towards a common goal for the benefit of all Virginians,” concluded Howell. “Today, leaders on both sides of this issue, and in both parties, are here to endorse this accomplishment. They deserve credit for their efforts and congratulations for the result in reaching this balanced compromise.”

Kilgore said the comprehensive payday lending reform legislation, in the form of a substitute to HB 12, will be on the docket for consideration by the House Commerce and Labor Committee at its meeting scheduled for Tuesday.

Comprehensive Payday Lending Reform Act Provisions of Substitute House Bill 12

•36 percent annual interest cap on borrowed funds

•Loan Fee: 10percent of loan amount borrowed

•Verification Fee of up to $ 5 per loan

•Minimum loan term of at least two times the pay cycle of the borrower

•A database maintained by a third party that is contracted by and under the oversight of the SCC. All licensees will subscribe to the database and ensure the following :
- No borrower may have more than one outstanding payday loan at one time, regardless of lender
- 24 hour cooling off period between loans
- 5 payday loans permitted per year

•Provisions of the bill apply to lenders making payday loans over the Internet to Virginia residents, whether or not the lender making the loan maintains a physical presence in the Commonwealth.

•A voluntary extended payment plan would be available at any time upon request of the borrower.

•No legal proceeding of any kind shall be filed or initiated by a lender against a borrower to collect on a payday loan until 60 days after the date of default on the payday loan, during which period the borrower may voluntarily enter into a repayment arrangement.

•All lender practices must be in compliance with the United States Fair Debt Collection Practices Act.


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